Implications of a Renewable Fuels Standard
Ted Monoson, Washington, D.C., defended his thesis, “Implications of a Renewable Fuels Standard,” March 30, 2011. Monoson is the Director of Legislative Affairs at Growth Energy in Washington, D.C. He will graduate from Kansas State University in May with a Master’s in Agribusiness (MAB).
In 2005, the U.S. implemented a Renewable Fuels Standard (RFS) that mandated increased production of ethanol to combat rising oil prices. While the mandate has resulted in a dramatic increase in the production of ethanol, including 23 percent growth between 2009 and 2010, there has not been much formal research conducted on the impact the RSF has on corn prices. Monoson analyzed grain, oil and ethanol prices both before and after the implementation of the RFS to see if it has affected prices.
“There has been speculation that after the RFS, corn prices are tied to oil and ethanol prices, but there has not been much formal research to see if one price change really affects the others,” Monoson said. “The assumption has been when oil prices are higher, corn prices will also rise due to demand of corn to produce ethanol.”
In his analysis, he found that grain and oil prices have tracked more closely together since the creation and expansion of the RFS. However, another model he analyzed showed a weak relationship between corn and oil prices, leaving the impression the two are linked, but the relationship needs to be studied over a longer period of time.
Allen Featherstone, Professor of Agricultural Economics and Monoson’s thesis advisor, said, “Clearly, the RFS has added another dimension to the corn market. Mr. Monoson’s thesis analyzed the relationships between the oil, corn, ethanol and unleaded gas markets. Evidence for a stronger correlation after RFS is strong. However, understanding whether there has been a structural change in the markets remains difficult to conclusively determine given recent corn production and other macro-economic occurrences. ”The full thesis publication can be found online on K-State’s Research Exchange at http://hdl.handle.net/2097/8405.